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DYNATRONICS CORP (DYNT)·Q4 2023 Earnings Summary

Executive Summary

  • Q4 FY’23 was weak: net sales fell to $8.44M with gross margin compressing to 14.7% and net loss widening to $(2.38)M, impacted by a large customer’s acquisition of a competitor, softer orthopedic bracing demand, and added inventory reserves .
  • Management reiterated FY’24 net sales guidance of $34–$37M and set SG&A at 29%–33% of sales, while withholding gross margin guidance given revenue and operating cost resets; seasonality expected to mirror history (higher Q1/Q4, lower Q2/Q3) .
  • Cost actions were “largely completed by June 30, 2023” with a focus on steady improvement in operating profitability in FY’24 and working capital flexibility via a new $7.5M ABL (drawn ~$1.8M, ~$2.6M additional availability as of Sept 15) .
  • No reliable Wall Street consensus available via S&P Global for Q4 FY’23 at this time, so no beat/miss analysis; the stock’s near-term catalysts are execution on cost reductions, stabilization of gross margin, and confidence in reiterated FY’24 revenue outlook [functions.GetEstimates error; see note].

What Went Well and What Went Wrong

What Went Well

  • Executed significant cost reductions across the business, largely completed by June 30, 2023; management aims to “demonstrate steady improvement in operating profitability during fiscal year 2024” .
  • Liquidity flexibility enhanced: company executed a $7.5M asset-based line of credit on Aug 1; as of Sept 15, ~$1.8M drawn with ~$2.6M availability, enabling ~$2.0M reduction in accounts payable versus June 30 .
  • FY’24 revenue and seasonality framework reiterated, giving investors visibility: net revenue $34–$37M; SG&A 29%–33% of sales; highest revenue in Q1 and Q4, lower in Q2 and Q3 .

What Went Wrong

  • Q4 revenue and margin deterioration: net sales declined to $8.44M from $11.19M YoY; gross margin fell to 14.7% (vs 23.4% YoY; 23.9% in Q3), pressured by lower product margins on reduced revenue and ~$0.2M of added inventory reserves .
  • Larger net loss with one-time items: Q4 net loss was $(2.38)M (vs $(1.56)M YoY), including ~$0.2M COGS for inventory reserves and ~$0.4M SG&A severance/one-time costs .
  • Demand headwinds: disruption from a significant rehabilitation customer’s vertical integration and reduced SKUs at an OEM bracing customer; pricing sensitivity increased; management characterizes market growth at roughly 0–1% in recent periods .

Financial Results

Quarterly progression (oldest → newest):

MetricQ2 FY2023Q3 FY2023Q4 FY2023
Net Sales ($USD Millions)$10.90 $9.24 $8.44
Gross Profit ($USD Millions)$3.10 $2.21 $1.24
Gross Margin (%)28.1% 23.9% 14.7%
SG&A ($USD Millions)$3.90 $3.43 $3.59
Net Income (Loss) ($USD Millions)$(0.80) $(1.25) $(2.38)
Diluted EPS ($)—$(0.36) $(0.63)

YoY comparison:

MetricQ4 FY2022Q4 FY2023
Net Sales ($USD Millions)$11.19 $8.44
Gross Profit ($USD Millions)$2.62 $1.24
Gross Margin (%)23.4% 14.7%
SG&A ($USD Millions)$4.10 $3.59
Net Income (Loss) ($USD Millions)$(1.56) $(2.38)
Diluted EPS ($)$(0.48) $(0.63)

Full-year context:

MetricFY2022FY2023
Net Sales ($USD Millions)$44.34 $40.61
Gross Margin (%)24.1% 25.0%
Net Income (Loss) ($USD Millions)$(3.99) $(4.97)

KPIs and balance sheet:

KPIQ3 FY2023Q4 FY2023Notes
Cash & Equivalents ($USD Millions)$0.67 (3/31/23) $0.55 (6/30/23) Seasonal drawdown and operating losses
Net Cash ($USD Millions)—$0.6 (6/30/23) From press release summary
Accounts Receivable ($USD Millions)$4.37 (3/31/23) $3.72 (6/30/23) Working capital reduction
Inventory ($USD Millions)$9.70 (3/31/23) $7.40 (6/30/23) Inventory reserve add’l $0.2M in Q4
ABL Facility—$7.5M facility; ~$1.8M drawn; ~$2.6M availability as of 9/15/23 ~11% rate, SOFR ~5%
Product Mix (Rev %)—~45% Orthopedic Bracing / ~55% Rehabilitation Mix described as consistent

Estimates vs Actuals:

  • S&P Global consensus for Q4 FY’23 EPS and revenue was unavailable via our service at this time, so no beat/miss determination is provided. [S&P Global consensus unavailable due to request limit; no comparison shown]

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net SalesFY2024$34–$37M (previously issued) $34–$37M Maintained
SG&A as % of SalesFY202430%–35% targeted 29%–33% Lowered
Gross MarginFY2024Not provided (deferred) Not provided Maintained
SeasonalityFY2024Highest Q1/Q4; lower Q2/Q3 Highest Q1/Q4 (~26% each), lower Q2/Q3 (~24% each) Clarified with percentages
Diluted Shares (Quarterly increase)FY2024~120K/qtr (Q3 commentary) ~240K/qtr (as of 9/22/23) Increased

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 FY’23, Q3 FY’23)Current Period (Q4 FY’23)Trend
Gross margin trajectoryQ2: 28.1% GM, +8.4ppt YoY; macro headwinds persisted . Q3: 23.9% GM; disruption and supply chain pressures .14.7% GM; lower product margin on reduced revenue; +$0.2M inventory reserves .Deteriorated in Q4 due to volume/mix and reserves
Customer consolidation impactQ3: Customer acquired competitor in rehab; OEM bracing SKUs reduced .Continues to pressure revenue and margins in Q4 .Ongoing headwind
New products contributionQ2/Q3: ~6% of revenue from products released in past 3 years; Mammoth tables >$1M orders .Still ~6% of revenue; pursuing modifications/additions .Sustained but needs scale
Cost structure/SG&AQ2: SG&A 30%–35% FY’23; invest in marketing . Q3: $1.5–$2.0M FY’24 SG&A reductions planned .FY’24 SG&A guided 29%–33% of sales; cost cuts largely completed .Lowered run-rate, focus on leverage
Working capital & liquidityQ2/Q3: Inventory reduced; no debt .ABL executed Aug 1; $1.8M drawn, $2.6M availability; AP cut ~$2.0M by 9/15 .Added flexibility
SeasonalityQ2/Q3: Highest Q1/Q4; lower Q2/Q3 .Reiterated with ~26%/24% split .Unchanged/quantified
AI/technologyQ3: No near-term AI leverage expected; focus on lean manufacturing .Not discussed in detail in Q4.Low priority

Management Commentary

  • “We have implemented significant cost reductions in all areas of the business. These were largely completed by June 30, 2023… Our goal is to demonstrate steady improvement in operating profitability during fiscal year 2024.” – Brian Baker, President & COO (incoming CEO) .
  • “Q4 net loss included $0.2 million of additional COGS related to inventory reserves and $0.4 million of SG&A for severance and other one-time costs.” – John Krier, CEO/CFO .
  • “We expect net revenue to be in the range of $34 million to $37 million [for FY’24]… SG&A is anticipated to be in the range of 29% to 33% of net sales.” – Brian Baker .
  • “As of September 15, 2023, our line of credit balance was approximately $1.8 million… additional availability approximately $2.6 million on a borrowing base of approximately $4.4 million.” – John Krier .
  • “Pricing [has] become more of an issue in the recent term… general demand out there is steady.” – John Krier .

Q&A Highlights

  • Demand/mix: Product mix broadly consistent (≈45% bracing/≈55% rehab); pricing sensitivity rising; overall demand steady at low growth rates .
  • New products: ~6% of revenue tied to recent launches; customer feedback guiding modifications/additions; opportunities seen for further penetration .
  • Liquidity details: $7.5M ABL tied to AR/inventory; ~11% rate with SOFR ~5%; primary covenant; provides working capital flexibility .
  • Channels/customers: No major shifts expected in customer/channel mix beyond digesting the large customer consolidation in rehab .
  • Seasonality and margins: Seasonality unchanged (Q1/Q4 > Q2/Q3); not ready to guide GM given plant rightsizing and revenue shifts; SG&A expected to run at lower end of range in higher-revenue quarters .
  • Share count: Expect outstanding shares to increase ~240K per quarter depending on share price (as of Sept 22, 2023) .

Estimates Context

  • S&P Global Wall Street consensus for Q4 FY’23 EPS and revenue was unavailable via our service at this time (request limit exceeded), so we cannot provide a beat/miss analysis or consensus comparison for this quarter. Investors should assume no consensus-based variance assessment is included here.

Key Takeaways for Investors

  • Q4 showed revenue pressure and gross margin compression tied to customer consolidation and mix; near-term priority is stabilizing gross margins while executing on cost reductions .
  • FY’24 outlook centers on $34–$37M revenue and SG&A at 29%–33%—delivery against this will be the key yardstick for sentiment and potential rerating .
  • Liquidity is improved via the new ABL, with evidence of working capital normalization (AP reduction, lower inventories); watch borrowing base and interest cost sensitivity .
  • New products contribute ~6% of sales; scaling the innovation cadence and extending into bracing could help offset lost rehab volume and lift mix/margins over time .
  • Seasonality implies stronger Q1 and Q4; traders should anticipate revenue cadence accordingly; margin commentary suggests caution until operations are fully rightsized .
  • Leadership transition to Brian Baker (effective Oct 1) adds execution focus on cost control and customer relationships—tone was pragmatic with emphasis on profitability improvement .
  • With no consensus data available here, the narrative—not a beat/miss—likely drives near-term stock reaction: ability to defend margins, deliver on SG&A targets, and show order stability will be critical.

Notes:

  • No S&P Global consensus values are presented because the data was unavailable via our service at this time (request limit exceeded).